Janet Yellens Global Impact

Worldwide Applause for the Feds First Female Chair

Janet Yellen was nominated Chair of the U.S. Federal Reserve by the President on October 9, 2013, following a relatively uneventful race in which candidate Larry Summers was forced to withdraw his name. Dovish and raised on Keynesian ideals at Yale University, Yellens approach towards heading the Fed wont be too different than that of Ben Bernanke, which has been applauded (overall) for its resolve during the Great Recession and the fallout afterwards. Perhaps the most important question before Yellens nomination was whether the Federal Reserve was going to begin tapering its bond buyback program or continue with the $85m per month stimulus boost. Her dovish nature suggests that she will continue to keep interest rates low as she focusses primarily on job creation.

Yellen Abroad
In her current position at the Fed, Yellen has been hard at work maintaining relations with central banks in all corners of the world. Conversation with other central banks is absolutely crucial in planning long term development, since every economys interests are tied together in our globalized society. This was demonstrated in the domino-effect seen five years ago. But as much as she would like to keep an open dialogue with other banks, Yellen knows that the U.S. economy is a much larger domino: harder to knock over but absolutely detrimental abroad when it falls. That is why she will continue to put the economic interests of the U.S. first, despite the negative consequences they might have internationally. To negate these potential consequences, Yellens transparency allows other central bank leaders to plan accordingly.

QE & Emerging Markets

Luckily for emerging markets, Yellen believes a continuation of the quantitative easing is in the United States best interest. Indifferent to these emerging markets, the Feds QE policy would indirectly benefit companies with a stake in Asia and Africa. A continuation of QE is dually important for U.S. companies: First, QE drives down interest rates, making it possible for financial institutions to rebuild capital and for U.S. companies to obtain more credit. A not so obvious problem emerges because of this, as poor economic conditions in the U.S. keep demand low. Second, this excess capital drives companies in developed markets to move into emerging markets. As developed markets growth stagnates, emerging markets growth is projected to see the greatest increase, making them attractive to corporations with money burning in their pockets.

Austin K. Fluck, Associate Economic Analyst October 14, 2013 Sources: Bloomberg News, WSJ, Pyramis Global Advisors